Commercial banks’ liquidity position decreased by 75 percent to K6.44 billion in May from K24.04 billion in March, a signal that banks continue to face liquidity squeeze, figures from the Reserve Bank of Malawi (RBM) show.
The RBM figures show that borrowing between banks also became expensive as interbank lending rates jumped to about 13.48 percent from about three percent during the same period last month.
In an interview on Monday, RBM spokesperson Mbane Ngwira admitted that banks are facing liquidity challenges, saying the central bank may look at the possibility of extending more funds to the banking sector through the Lombard facility.
He said: “The RBM, as earlier indicated, continues to monitor the situation and we will act accordingly to protect the banks should the situation escalate to unbearable levels.
“You may recall that we deliberately took some measures, including slashing the liquidity reserve requirement (LRR) and Lombard rate, to ease liquidity pressures on banks thus making more funds available to the banks.”
Bankers Association of Malawi chief executive officer Lyness Nkungula admitted that banks are struggling with liquidity challenges, but said the extent of the pressure varies from bank to bank.
In response to market developments in the face of Covid-19 pandemic, RBM Governor Dalitso Kabambe earlier announced some measures to incentivise commercial banks.
Some of the measures include pushing the LRR—percentage of customers’ deposits that commercial banks are mandated to hold as deposits with the central bank—downwards by 125 basis points to 3.75 percent.
This reduction immediately released about K12 billion into the banking system as additional funds available to commercial banks to directly support distressed borrowers.